7 Steps to a Successful Overseas Expansion: Avoiding the Pitfalls by Laying the Groundwork

By Michael Flagiello

Companies are in a golden age of expansion—and never has the landscape been brighter. World population is accelerating, and global forces and technology advances are making it easier to fuel new sources of revenue. Customers are demanding and embracing new products, services, and technologies, and the barriers to providing them are coming down. Ecommerce is […]

Companies are in a golden age of expansion—and never has the landscape been brighter. World population is accelerating, and global forces and technology advances are making it easier to fuel new sources of revenue. Customers are demanding and embracing new products, services, and technologies, and the barriers to providing them are coming down. Ecommerce is a prime paradigm—take a look at the insurance industry. With account and premium information accessible with a swipe on their smartphone, customers can seek a quote Sunday night at 11:30 p.m., and a company is available to respond. This functionality can come from anywhere in the world, opening up new markets and expanding service providers.

But not all expansions flourish. In planning an expansion strategy, companies must build a pathway to success. The difference between triumph and failure boils down to laying the groundwork: being mindful of the culture fit, grasping customers’ expectations, building relationships with staff, and communicating clearly. It also entails educating both existing employees and future customers, making the necessary investments in infrastructure, and developing flexible, adaptable interim solutions. Following these 7 steps can lead to success.

1. Study the local culture and learn the language
The rest of the world doesn’t always do business the way it’s done here.

Becoming accustomed to the culture entails taking time to build a relationship before broaching a business discussion. Culture is ingrained, and if the fit is not managed properly, problems will surface down the road. Case in point: A large global bank purchased a $1 Billion commodity business, seeking to expand its geographic location and product line, and immediately announced new and major changes. But it failed to realize the entrepreneurial gemstone in the acquired company. Not used to meeting rigid corporate demands, the commodity business chafed under that management style, key people left, and with its passion squeezed out, soon went out of business. Almost overnight, $1 Billion in revenue evaporated. The expensive mishap could have been avoided had the parent company studied the culture and make up of what they were buying, and appreciated and integrated its entrepreneurial style.

The same goes for doing the necessary legwork to research the country and learn its customs and language. Although English is spoken throughout the world, it shows respect for employees and customers in the expansion region to learn the local language and dialect. The same goes for body language subtleties. Things the home country executives take for granted could offend people in the satellite location.

Success rides heavily on understanding customers’ expectations—and doing what it takes to keep them happy. After all, their revenue will drive the expansion’s success. Make sure customer service phone lines function, and that wait times are short. If the transition is rocky, customers will be gone before the ink is dry on the final contract.

3. Invest in infrastructureThat means not only retail and factory space but also proper communication and data processing systems.

It’s especially critical for integrating reporting and operations. Without transparency, it can be a nightmare. One executive outsourced operations to the Middle East, ending up with 25 different business units with no capability to port numbers into its master reporting system. That’s a horror story for any profit-focused business.

Alpha executives derive success from growing and expanding to a global geographic footprint, but often don’t concentrate on the mundane measures of success, or equally important, how to communicate with their new colleagues. When their systems quickly become inadequate, they’re in a panic about what to do, an unnecessary byproduct of sacrificing triumph on the altar of expansion. Advanced planning to determine the kinds of systems needed would have made it seamless. Employees in the new location can be a ready source of insight.

Examples of failure are legion—but usually boil down to errors in practical issues. For instance, an Asian company used QuickBooks to account for collections, expenses, and profits. But its global joint venture partner had a much more robust system which couldn’t easily tie into the QuickBooks system. Lots of small companies start by keeping their books on an Excel spreadsheet, which works until they get to the point of being a real business and need more sophisticated reporting tools and the systems to communicate results. These kinds of problems can be easily avoided by anticipating a threshold of when to make the investment and upgrade to more suitable systems.

Some companies do an amazing job, taking time to establish the upfront framework and lay the ground rules for a successful expansion. The punch list comprises not only integrating reporting and compliance but also the willingness to deliver timely data to the corporate entity. A global enterprise with thousands of divisions and subsidiaries may encounter some who find the process too stifling. But the enterprise is right to adopt rules of engagement and insist that the new entity comply and assimilate. Anything less can lead to an expensive disaster.

4. Build rapport with local staff
The staff is the company’s eyes and ears in the local marketplace. They know how customers think and what their expectations are.

Oftentimes, companies assume they can manage communication with a new entity by telephone or email—but that’s shortsighted. It can’t begin to compare with the positive results of making the investment to visit the new area—even if it’s half-way around the world—to build rapport with the staff and learn their impressions of what customers want and need.

When technology first began to be outsourced, two models emerged: 1) the supplier made a weekly call to the company, spoke to someone it had never met, nor had any rapport with, and, not surprising, found it a challenge to communicate, and 2) the supplier made the investment to visit the company for three to six months (with the account team in tow). It’s not difficult to understand which model worked, and why. Becoming embedded in the region’s culture and on a first-name basis with new colleagues there built rapport and understanding, making the two entities unified, committed to shared goals, and pulling together to succeed.

5. Communicate clearly, with both existing employees and those in the satellite country
Left in the dark about the company’s intentions, employees at home and abroad can falter.

Good communication is essential for employees when the company announces the expansion. If employees aren’t well versed, they can wreak havoc. Concern about keeping their jobs or reporting to someone in another hemisphere breeds inefficiencies, leads to discontent, and invites calls from recruiters. Losing employees who are crucial to the expansion’s success is a setup for failure. And good communication extends to the new employees at the expansion site. Take time to listen to their concerns and make sure they understand the goals and mission. That way they’ll be equipped to do the jobs the company is counting on them to do.

6. Educate employees and customers
Make sure employees know the products, and that customers understand how the products will benefit them.

A profitable expansion calls for educating and guiding all parties before the new business is launched, developing an operating plan that works, and then communicating it clearly so everyone is on board and committed to its success. That means informed employees who not only understand the product but also the contribution they make to its manufacture and distribution. And it involves explaining to the customers how they will benefit from the product or service.

7. Make sure that interim solutions are flexible and can adapt to future growthFailing to plan adequately can be expensive.

Some companies do an excellent job of planning on an interim basis—but lack the insight or resources to think longer term. A consultant or advisor can help by looking at immediate needs, determining what may be required tomorrow, and designing interim solutions that can be adapted as the enterprise grows. An example is billing: It can be outsourced for a time, but at some point the company may want to take the process in house. That entails building a relationship based on that premise, and maintaining a history of the components to foster a smooth transition when the time comes. Executives who execute workable expansions may not have the dollars needed today to build a $100 Million company, but they are clever enough to build the right systems to support that growth when it comes.

In conclusion, growth through expansion in the age of globalization can be risky, but doing it right promises rewards. Observing the blunders of companies who tried and failed is a blueprint for what a successful expansion requires.

Cultural differences can be a company’s undoing—after all, it’s the people who matter most. The competitive landscape dictates that the customer experience be seamless. Making the right infrastructure investments, particularly those required to ensure the right systems and processes, is key. And just as a general listens to troops on the front line, company management must build rapport with the staff abroad to promote the free flow of information and perception of customers’ needs. It not only will foster open and honest communication but also alert management to issues before they can escalate into big (and potentially expensive) problems. Taking time to educate people on both sides of the expansion—as well as customers—is vital in maintaining the key personnel that can make it succeed. Finally, interim solutions to get the enterprise underway must be designed to adapt to its longer-term growth.

Companies with the foresight to take these steps can grow and thrive. The process can be either collaborative, or the mother ship can more formally dictate terms, but the essence is solidified in a strategy, a plan to execute it, and making the necessary investments to ensure it can flourish.